The Economics of Piracy

By Deane Barker on January 5, 2004

On Piracy, or, Nick Bradbury is an Amazing Idiot: This was written in response to Nick Bradbury’s bit about piracy from yesterday.

…most people who pirate his software probably would never use it anyway, so they aren’t costing him any money and they’re providing him with free advertising.

This is a good point. I’m not defending piracy, but piracy costs a company money in only one instance: when a person who has the means and inclination to buy the software pirates it instead. I can get a pirated copy of Oracle, but that doesn’t mean I’ve cost that company money, because if I couldn’t pirate it, I wouldn’t buy it — I’d use something cheaper or free.

Now, there are holes in this theory, of course, because if true, it essentially means that poor people can pirate anything they want because they couldn’t or wouldn’t buy it otherwise. But I get annoyed when Microsoft claims that piracy costs it untold billions of dollars a year. This is a little arrogant. Microsoft is basically saying that every single person who pirated their software would have paid full price for it if piracy wasn’t an option.

This is patently ridiculous and Microsoft knows it, but big numbers make big headlines. If Office was suddenly un-piratable, would Microsoft reap a billion-dollar windfall from would-be thieves? Nope — Open Office would just saturate the market in a big hurry. When the only options are paying for it or finding a much cheaper alternative, 99% of pirates will choose the latter.



  1. I got a trackback from here…

    ..which drew an interesting conclusion: piracy hurts open source.

    I guess I was saying this all along without quite know it, but it’s true. If everyone stopped pirating Microsoft Office tomorrow, open source alternatives like Open Office and Abiword would suddenly burst forth to fill the gap.

    Peversely, the best thing that could ever happen to open source projects is to have the commercial equivalent suddenly become unbreakable.

  2. I believe piracy would benefit the firm if there is a difference between the pirated and the original stuff. If a customer pirates something like a music file and likes the song however the pirated stuff is inferior in quality to the original stuff it might encourage the user to buy the original goods.

    There has to be some value addition for non pirated stuff.

  3. I have to disagree. I don’t think ‘99% of pirates’ would choose the latter.

    I think 99% of those who know how to get the App off the net would do that. But it isn’t just them. It’s their friends, family and co-workers, too. It’s the very people that would never KNOW OpenOffice exists as an alternative for MS Office.

    If they don’t know there’s an alternative, they’ll quite willingly fork over the cash for the ‘real deal’.

    Even ones that -do- know about the alternative may choose to buy the MS Office because it’s ‘official’ in their eyes and should work better/easier. The truth won’t matter, that’s what they believe.

    I’m not going to even guess at the percentage for this, but it’s nowhere near 99%.

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